SEC’s ad vote won’t open floodgates for private fund firms

Don’t expect to see any TV commercials or flashy Internet ads for any of Greater Boston’s large hedge funds or private equity firms anytime soon.

For some of these firms, the thought of advertising is downright distasteful, and doing so could sour relationships with large, institutional investors accustomed to a certain amount of tact and discretion.

For those reasons, the end result of the U.S. Securities and Exchange Commission’s decision this month to lift its ban on hedge fund and private equity advertising will likely result in little change for larger firms.

Fund managers have been enjoying an upswing after a brutal couple of years during the Great Recession. The five largest private equity and hedge funds in Boston — Cambridge Associates, Harbourvest Partners, Bain Capital, Adage Capital and the Baupost Group — reported about $208 billion in assets under management in October, an increase of about 20 percent compared to the previous March. The broader hedge fund industry also saw significant growth, with $29.8 billion flowing into hedge funds in the first half of this year, compared to $34 billion in all of 2012, according to Hedge Fund Research Inc.

Partners at some of the larger local firms say advertising would be an expensive waste, one that would more likely hurt these recent gains than stoke further growth.

Once a private equity or hedge fund reaches about $1 billion — and there are a few more than 100 of that size in Boston — its overseers seek institutional investors. Those potential clients — often endowments, foundations and pension funds — are not attracted by advertising, and don’t need to be. They know what types of investment strategies they want to use, and in what proportions. They investigate what private equity and hedge funds can do for them, and how they’ll do it.

Managers of private equity and hedge funds are careful about what they say publicly, and even what their websites look like. Efforts to stay on the right side of the law keep funds quiet to the point of outright secrecy.

A partner at one local $10 billion private equity fund said the removal of the ban wouldn’t lead his firm to advertise, but it might get fund managers to relax a little, and more freely speak to the public or at conferences.

Industry experts say smaller firms are more likely to get in on the advertising game, but those efforts will come with serious challenges.

Jim Suglia of KPMG in Boston said a firm that wants to advertise may also consider offering a broader set of products in order to appeal to a wider audience.

Suglia said fund managers intent on diversifying will have to come to terms with the regulations that govern their new business lines, and the costs associated with complying with those regulations. And that’s on top of marketing costs for firms that want to advertise.

Mark Coriaty, vice president at Boston-based Eze Castle Integration, said the best way for hedge funds and private equity firms to market themselves might be much more expensive than most would be comfortable with.

He said it’s likely that hedge funds that want to take advantage of their newfound freedom will try to form partnerships to offer investments through larger, more well-known money managers.

“People don’t really want to be marketed to, especially high-net-worth people,” Coriaty said. “They might be more comfortable talking to somebody at Fidelity than (with) a manager looking for funding.”